1. Strategic Management and the Entrepreneur-Over view
Chapter 3:

2. Chapter Objectives
1. Understand the importance of strategic management to a small business. 2. Explain why and how a small business must create a competitive advantage in the market. 3. Develop a strategic plan for a business using the nine steps in the strategic planning process. 4. Discuss the characteristics of three basic strategies: low-cost, differentiation, and focus and know when to employ them. 5. Understand the importance of controls such as the balanced scorecard in the planning process.

3. 1. Explain why and how a small business must create a competitive advantage in the market.
The goal of developing a strategic plan is to create for the small company a competitive advantage--the aggregation of factors that sets the small business apart from its competitors and gives it a unique position in the market. Every small firm must establish a plan for creating a unique image in the minds of its potential customers. A company builds a competitive edge on its core competencies, which are a unique set of capabilities that a company develops in key operational areas, such as quality, service, innovation, team-building, flexibility, responsiveness, and others that allow it to vault past competitors. They are what the company does best and are the focal point of the strategy. This step must identify target market segments and determine how to position the firm in those markets. Entrepreneurs must identify some way to differentiate their companies from competitors.

4. 2. Develop a strategic plan for a business using the ten steps in the strategic planning process.
Small businesses need a strategic planning process designed to suit their particular needs. It should be relatively short, be informal and not structured, encourage the participation of employees, and not begin with extensive objective setting. Linking the purposeful action of strategic planning to an entrepreneur’s little ideas can produce results that shape the future.

5. Steps
Step 1. Develop a clear vision and translate it into a meaningful mission statement. Highly successful entrepreneurs are able to communicate their vision to those around them. The firm’s mission statement answers the first question of any venture: What business are we in? The mission statement sets the tone for the entire company. Step 2. Assess the company’s strengths and weaknesses. Strengths are positive internal factors; weaknesses are negative internal factors. Step 3. Scan the environment for significant opportunities and threats facing the business. Opportunities are positive external options; threats are negative external forces.

6. Steps
Step 4. Identify the key factors for success in the business. In every business, key factors that determine the success of the firms in it, and so they must be an integral part of a company' strategy. Key success factors are relationships between a controllable variable and a critical factor influencing the firm's ability to compete in the market. Step 5. Analyze the competition. Business owners should know their competitors almost as well as they know their own. A competitive profile matrix is a helpful tool for analyzing competitors strengths and weaknesses. Step 6. Create company goals and objectives. Goals are the broad, long-range attributes that the firm seeks to accomplish. Objectives are quantifiable and more precise; they should be specific, measurable, assignable, realistic, timely, and written down. The process works best when managers and employees are actively involved.

7. Steps
Step 7. Formulate strategic options and select the appropriate strategies. A strategy is the game plan the firm plans to use to achieve its objectives and mission. It must center on establishing for the firm the key success factors identified earlier. Step 8. Translate strategic plans into action plans. No strategic plan is complete until the owner puts it into action. Step 9. Establish accurate controls. Actual performance rarely, if ever, matches plans exactly. Operating data from the business assembled into a comprehensive scorecard serves as an important guidepost for determining how effective a company’s strategy is. This information is especially helpful when plotting future strategies. The strategic planning process does not end with these nine steps; rather, it is an ongoing process that an entrepreneur will repeat.

8. 3. Establish meaningful goals and objectives.
Goals are broad, long-range attributes a company seeks to accomplish; objectives are quantifiable and more precise. They should be specific, measurable, assignable, realistic, timely, and in writing.

9. 4. Discuss the characteristics of three basic strategies: low-cost, differentiation, and focus.
Three basic strategic options are cost leadership, differentiation, and focus. A company pursuing a cost leadership strategy strives to be the lowest-cost producer relative to its competitors in the industry. A company following a differentiation strategy seeks to build customer loyalty by positioning its goods or services in a unique or different fashion. In other words, the firm strives to be better than its competitors at something that customers value. A focus strategy recognizes that not all markets are homogeneous. The principal idea of this strategy is to select one (or more) segment(s), identify customers special needs, wants, and interests, and approach them with a good or service designed to excel in meeting these needs, wants, and interests. Focus strategies build on differences among market segments.

10. 5. Understand the importance of controls such as the balanced scorecard in the planning process.
Just as a pilot in command of a jet cannot fly safely by focusing on a single instrument, an entrepreneur cannot manage a company by concentrating on a single measurement. The balanced scorecard is a set of measurements unique to a company that includes both financial and operational measures and gives managers a quick yet comprehensive picture of the company's total performance.